US. Rich Professionals Are Using Pension Plans as a Tax Dodge
There’s one area where the traditional pension plan is getting new life — as a tax dodge for wealthy business owners.
Pensions, also known as defined-benefit plans, can be used by doctors, law partners and wealth managers to stash hundreds of thousands of dollars in income a year. By doing so, they’ll get around the income limits Congress created to bar them from a generous new tax break for owners of pass-through entities, who report the firms’ income on their individual tax returns.
The Treasury Department proposed regulations last week specifying who qualifies for the 20 percent deduction, which effectively slashes the top tax rate to just under 30 percent from 37 percent. The rules also say that planning techniques such as the “crack and pack” — where business owners split their firms into different entities to lower their tax bills — are considered abusive.
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